It shouldn't matter if it reads ftp2 or ftp.
apt-get gets the lists, and they are up to date.

@garyng: Could you post your apt-get output as well as your sources.list?

I am curenntly reinstalling my knoppix, partly out of interrest if the kde upgrade really works out the way I described.
One point I have already to correct: It won't work with testing, only with unstable: testing still seems to use kdelibs3! *confused*

EDIT: Another point to correct: when rerunning apt-get after having corrected a problem manually, use "apt-get -f install"
If this run through without errors, execute your initial apt-get command ones more ("apt-get install kde")
actually the only dpkg-command that seemed necessary was "dpkg -i --force-overwrite" to install a package although it overwrites files of another package (kalarm did this on my computer)